When you decide it's time to upgrade your vehicle, there are many things to consider. Along with what car you need, you'll also have to determine if you should buy or lease. Both options have several advantages and disadvantages, so it all comes down to what works for you and your financial situation. Here's a review of the benefits of buying and leasing and some of the downfalls, so you can make an informed decision.

What Is the Difference Between Buying and Leasing?

It's important to understand what it means to buy a car vs. lease a car before you decide which one is the better option for you. When you lease, it is essentially a long-term rental. You make monthly payments to a leasing company and drive the car for a specified timeframe and for a certain number of miles. Most leases last for three to four years, and when the lease contract ends, you bring the car back to the dealership.

Buying a car means you either pay for it outright with money you already have or, in most cases, borrow money from a financial institution to pay for the vehicle. If you borrow money, the lender actually owns the car until you complete the loan repayments. But, once you make that final payment, you own the car, and it's yours until you decide to sell it.

The Benefits of Leasing

There are some significant advantages to leasing a car. Some of these include:

• Lower monthly payments: Since you're only paying for the use of the vehicle and not the entire cost of it, monthly lease payments are lower than monthly loan payments.
• Lower down payment: Lease contracts often require less money down, and sometimes you don't need to make a down payment at all.
• Repairs are covered under the manufacturer warranty: Since leased vehicles are often new, you get the benefit of the manufacturer's warranty, which usually lasts for three years.
• No resale concerns: Leasing means you don't have to sell the vehicle when you are ready for a new one. All you need to do is bring it back to the dealership and pay any fees to end the contract.

Another advantage of leasing is the ability to upgrade your vehicle every few years. Since lease contracts only last three to four years, you can bring the car back at the end of the lease and get into a new vehicle with a new lease. This means you'll always drive a new car with the latest technology and features.

The Disadvantages of Leasing

While it has many advantages, leasing a car also has some drawbacks.

• Mileage restrictions: Lease contracts specifically state the number of miles you can drive. Each mile that exceeds this limit will add to your final lease payment.
• No equity: When you lease a car, 100% of the monthly payment goes to the leasing company, so you don't build up any equity. When you buy a car, a portion of the loan payment goes towards the principal.
• Added fees: Some lease contracts require security deposits, and there may also be fees if you terminate the lease early.
• Wear and tear expenses: You are responsible for excessive wear and tear on a leased vehicle. If it's returned with damage, you'll have to pay the dealership for the repairs.
• No customization: Lease contracts often stipulate that you cannot make any modifications to the car. If you like aftermarket accessories or upgrades, you'll want to stay away from leasing.

The Advantages of Buying

When you compare buying to leasing a vehicle, buying has some significant benefits.

• Equity buildup: Buying your car means that you will eventually own it. While making car payments, you build up equity, which you can use towards a down payment on your next vehicle.
• No mileage restrictions: There's no need to worry about the number of miles you put on the car.
• No restrictions on aftermarket upgrades: When you buy a vehicle, you are free to make any modifications you want. This is not possible with a leased vehicle.
• Ability to sell the car at any time: You can sell a vehicle you purchase at any time.
• Lower insurance costs: Insurance is usually less expensive when buying a car.

The Disadvantages of Buying

Although buying a car has many advantages and is often a good financial decision, it can also come with some disadvantages.

• Larger down payment: A significant down payment is often needed in order to keep monthly loan payments affordable.
• Depreciation: A new car loses value as soon as you leave the dealership. This results in a large portion of the money you spend getting lost to depreciation. You may also find yourself "upside down" in your loan, which means you owe more than the car is worth.
• Higher monthly payments: Loan payments are usually higher than lease payments because they include interest plus principle.
• Long-term maintenance: Maintenance costs for a vehicle can be significant once the warranty runs out. When you buy a car and keep it for the long term, you'll be 100% responsible for repairs after the end of the warranty period.

The Bottom Line

Deciding whether to buy or lease your next new vehicle comes down to what is best for you. There is no one-size-fits-all situation. You'll want to take a good look at your finances, consider your driving habits, and think about your lifestyle. Leasing is a good option if you like driving a new car and always want the latest and greatest technology and features, and it's also a good option if you don't put a lot of miles on your vehicle.

If you do a lot of driving, are concerned about building equity, and want the option to customize your car, then buying is the better way to go.

If you're still unsure about whether you should buy or lease, stop by Kraft Nissan. Our finance team can sit down with you and discuss your options. We'll provide you with all the information you need to make an informed decision.